Prepared by the Directors and Management of Powerlink … · 2015-09-11 · Powerlink Statement of Corporate Intent 2014/15 1 1 EXECUTIVE SUMMARY Powerlink is a Queensland Government

Queensland Electricity Transmission Corporation LimitedABN 82 078 849 233

Prepared by the Directors and Management of Powerlink Queensland for shareholding Ministers, including the Treasurer and Minister for Trade

and Minister for Energy and Water Supply

STATEMENT OF CORPORATE INTENTPowerlink Queensland

/

CONTENTS

1 EXECUTIVE SUMMARY ________________________________________ 1

2 CORPORATE OVERVIEW ______________________________________ 32.1 Corporatisation Framework ________________________________________________________________32.2 Main Undertakings _________________________________________________________________________32.3 Performance Drivers _______________________________________________________________________4

3 CORPORATE BUSINESS STRATEGIES _____________________________ 53.1 Business Strategy ___________________________________________________________________________5

4 BUSINESS PERFORMANCE _____________________________________ 64.1 Letter of Strategic Intent ___________________________________________________________________64.2 Financial Targets ___________________________________________________________________________64.3 Non-financialTargets ______________________________________________________________________74.4 Assumptions _______________________________________________________________________________84.5 Financials ___________________________________________________________________________________8

4.5.1 Consolidated ________________________________________________________________________84.5.2 Key Assumptions __________________________________________________________________ 10

4.6 Capital Expenditure Program ____________________________________________________________ 12

5 ADDITIONAL MATTERS ______________________________________ 145.1 Corporate Governance __________________________________________________________________ 145.2 Community Service Obligations __________________________________________________________ 145.3 Capital Structure and Borrowings ________________________________________________________ 145.4 Dividend Policies _________________________________________________________________________ 145.5 Employment and Industrial Relations Plan (E&IR Plan) ____________________________________ 145.6 Risk Management ________________________________________________________________________ 155.7 Salaries and wages _______________________________________________________________________ 155.7 Recruitment _____________________________________________________________________________ 15

6 PERFORMANCE AGREEMENT __________________________________ 166.1 Directors’ Statement and Agreement of Shareholding Ministers __________________________ 16

7 ATTACHMENTS _____________________________________________ 17Attachment 1:FinancialandNon-FinancialTargetDefinitions ____________________________17Attachment 2: Employee Relations _________________________________________________18Attachment 3: Sponsorship, Advertising, Corporate Entertainment & Donations _____________22

8 GLOSSARY OF ABBREVIATIONS ________________________________ 25

Powerlink Statement of Corporate Intent 2014/15 1

1 EXECUTIVE SUMMARYPowerlink is a Queensland Government Owned Corporation (GOC) established in 1995 under the Government Owned Corporations (GOC) Act 1993. Powerlink develops, operates and maintains the Queensland electricity transmission grid.

This is Powerlink’s Statement of Corporate Intent (SCI) for the upcoming 2014/15financialyearreflectingtheinitiativesbeingimplementedtofocusonefficiency,effectivenessandimproveddeliveryofelectricitytransmission services. The SCI takes into consideration the strategic issues and goals of Powerlink in line with longer term matters outlined in the Corporate Plan and operating within the framework of the National Electricity Market (NEM).

The economic regulator for electricity transmission is the Australian Energy Regulator (AER). The AER delivereditsfinalregulatorydeterminationforPowerlinkon30April2012. This determination covers the fiveyearperiodfrom2012/13 to 2016/17. Powerlink derives approximately 90% of its revenue from the provision of prescribed (regulated) transmission services. The regulatory process is aimed at determining theefficientcostsrequiredtomeettheobligationsofPowerlink.Powerlinkwillcontinuetofocusonreducingcontrollableexpensesandpursueoperationalefficienciessettingcostreductiontargetstooutperform theAERdetermination.Thiswillincludealigningourworkforcetodeliverthetargetedefficiencies.

Key business initiatives for 2014/15arepresentedinSection3.Section4setsoutthespecific2014/15 financialandnon-financialtargets,whichincorporatethetargetedoperationalefficienciesandcostreductions(both operating and capital expenditure), while maintaining Powerlink’s mandated reliability and security standards.

Powerlink believes that outperforming the AER’s controllable operating cost allowance is achievable. For SCI business planning purposes, a stretch target has been adopted to outperform the AER’s controllable operating cost allowance.

WhilePowerlinkisrequiredtopreparedemandandenergyforecastsannuallyandpublishtheminaTransmission Annual Planning Report (TAPR) in June each year, Powerlink has committed to updating its demand and energy forecast every six months while there continues to be uncertainly in economic outlook forecasts. This SCI is based on Powerlink’s most recent demand and energy forecast prepared in February 2014.

Electricity demand growth has moderated in response to reduced electricity use by consumers due to the uptake of solar PV, a continuing slowdown in the mining and resource sector and price pressure. This means changes to the timing of future network developments and reductions in the amount of network augmentation planned to be undertaken.

The need to replace and refurbish existing aging network assets will continue notwithstanding the slowdown in demand. However, Powerlink will increasingly focus on optimising these replacement works when assets reach the end of their technical life.

Since publication of the June 2013 TAPR forecast, a range of inputs has been updated for the purposes of the mid-year review, including:• Review of economic data from AEMO• Solar PV contribution to meeting peak demand• Direct connect customer forecasts• Review of actual outcomes in 2013/14 to date• Changes to Powerlink’s forecasting methodology.

This review indicates that the mid-year update for the demand and energy forecasts is lower than the 2013 TAPR forecast. As a result, there is a further planned reduction in capital works projects compared to the previous forecast.

The remaining forecast augmentation capital expenditure in the current regulatory period is concentrated in the Surat and Bowen Basin resource areas. In the Surat Basin, existing customer commitments still point tosomenetworkaugmentationbeingrequiredtosupportsystemvoltagesintheareaastheloadgrows.

AugmentationintheBowenBasinareamayberequiredifexportcoalmarketconditionsimprove.

Powerlink Statement of Corporate Intent 2014/152

Powerlink will continue to monitor and respond to electricity demand trends to avoid the prospect of any over-investment and any unnecessary electricity transmission price impacts. Powerlink will develop the Queensland network to meet customer electricity demands, and safety and reliability standards at the lowest long run cost to customers.

To deliver this outcome and the additional committed non-prescribed (unregulated) transmission network connections, Powerlink’s capital expenditure in 2014/15 is forecast at $522.9 million.

Regulated capital expenditure accounts for approximately 44% of forecast capex in the 2014/15financialyear.

Thecapitalexpenditureforecastchangesforthecurrentfive-yearregulatoryperiod(from2012/13 to 2016/17), incorporating actual expenditure in previous years, is expected to deliver a reduction in regulated capital expenditure compared to the AER revenue decision.

Whilst no new non-regulated transmission network investments are included, negotiations continue with potential new proponents. Powerlink will liaise with Projects Queensland regarding appropriate funding options for future non-regulated projects, including prepayment pricing and other arrangements as appropriate.

Powerlink seeks to deliver reasonable returns to its shareholders and operate within the agreed capital structure and credit rating for the business.

The Australian Energy Regulator (AER) completed its “Better Regulation” program in late 2013, which involved the release of a number of guidelines which must be applied to the next regulatory determination processes for electricity transmission and distribution businesses.

The Queensland Government, in its State Budget on 3 June 2014, released a draft plan proposing a program of asset transactions, which included Powerlink Queensland.

The Government has stated that it remains fully committed to seeking a mandate from the Queensland people before divesting itself of any Government business. However, the Government will commence some preliminary due diligence and preparation activities to ensure that Powerlink is able to be completed in a timely manner, should the Government decide to proceed.

Powerlink will continue to assist Government throughout this process and will ensure that the business isoperatingasefficientlyandeffectivelyaspossible.


2 CORPORATE OVERVIEW2.1 Corporatisation FrameworkThe objectives of corporatisation are to improve Queensland’s overall economic performance and the abilityoftheGovernmenttoachievesocialobjectivesbyimprovingGOCs’efficiencyandeffectivenessandtheir accountability. GOCs operate as far as possible on a commercial basis in a competitive environment while remaining in public ownership and allowing the State to provide strategic direction to them by setting financialandnon-financialtargets.

ThePowerlinkBoardofDirectorsapprovesthestrategiesandoperationalandfinancialobjectives for the Corporation.

2.2 Main UndertakingsPowerlink is the Queensland Transmission Network Service Provider (TNSP) in the NEM, regulated in accordance with the National Electricity Rules (Rules) and the Electricity Act 1994 (Qld) (the Act). It is a Transmission Entity under the Act and is the holder of a Transmission Authority from the Queensland Government that authorises it to operate the Queensland electricity transmission grid.

The key services Powerlink provides to meet its obligations under the Rules and the Act is to:• Deliver transmission services to consumers and electricity market participants through provision

of its regulated transmission grid.• Provide non-regulated transmission network connection services.• Establish and manage alternate non-network solutions where that is more economical than a transmission

investment.• Provide metering services.• Perform the following functions as appointments from the Queensland Government:

– Responsible Officer for Queensland;

– Jurisdictional System Security Coordinator in Queensland; and

– Jurisdictional Planning Body for electricity transmission in Queensland.

• Other services including the provision of technical services, wholesale telecommunications services and oil testing services.

Transmission Use of System Services (TUOS) prices associated with Powerlink’s regulated revenue for prescribed transmission services are calculated in line with the annual Maximum Allowable Revenue (MAR) determined by the AER, with adjustments for the AER Service Target Performance Incentive Scheme (STPIS).


2.3 Performance DriversSomecharacteristicsofthebusinessenvironmentinwhichPowerlinkoperatesareuniquetoQueensland,such as:• long distances due to decentralisation;• forecast demand growth, albeit at a moderating rate;• mandated reliability of supply obligations with potential for this to be relaxed at supply points

with the agreement of the Queensland Electricity Regulator;• the location of generation; and• keylegislativerequirements.

The key drivers for Powerlink in this environment include:• Safety• Forecasteconomicgrowthandefficientcapitalworksprogram• Network performance and utilisation• Operationalefficiency• Consumers and stakeholders• Community engagement• Environment.

Ergon Energy is a key service provider to Powerlink. Powerlink is working with Ergon Energy to ensure relevant services continue to be provided through a commercial framework.


3 CORPORATE BUSINESS STRATEGIES3.1 Business StrategyPowerlink’s Business Strategy has been developed to provide direction on how the organisation will achieve its Vision: “Powerlink is a safe, commercial and performance focussed organisation,

that creates and delivers valued outcomes.”

The Business Strategy will be delivered through the implementation of initiatives that are focussed on achieving our performance goals under four strategic themes. The themes and main initiatives include:

Safe for Life• Safety and health awareness• Leadership development• Our people• Employee culture and engagement

Efficient Performance and Delivery• Planning standards• Flexible works delivery model• Value improvement drive• Network utilisation

Agile People and Processes• Employee engagement• Key business processes

Stakeholder Value Proposition• Corporate citizenship framework• Stakeholder engagement framework• Reputation framework• Consumer value


4 BUSINESS PERFORMANCE4.1 Letter of Strategic IntentShareholding Ministers have previously provided high level strategic planning and performance expectations to provide guidance for Powerlink in developing its strategic priorities. The Board of Powerlink acknowledges thoseexpectationsandcontinuestoincorporatethemintoitsstrategicprioritiesandfinancialand non-financialtargets.

4.2 Financial TargetsIn accordance with the above corporate and operational objectives, the Board of Powerlink has established and will seek to achieve the following performance stretch target for 2014/15:

2014/15Stretch Target


PERFORMANCE TARGETS

• EBIT $573.6 M $547.4 M

• NetProfitAfterTax(NPAT) $218.6 M $200.9 M

• Capital Expenditure $522.9 M $677.8 M

• Return on Assets (ROA) 1 7.2% 7.1%

• Debt / Fixed Assets Ratio 55.2% 57.1%

• Interest Cover Ratio (EBITDA) 3.3 3.2

• Dividend Payout Ratio 80% 80%

• Dividend Provided $174.9 M $160.7 M

• Dividend Return on Share Capital 43.6% 40.1%

PERFORMANCE INDICATORS

• ReturnonEquity(ROE) 8.2% 8.1%

• Debt/Debt+EquityRatio 61.3% 63.5%

1 Achieves Powerlink’s Regulatory WACC.


4.3 Non-financialTargetsIn accordance with the above corporate and operational objectives, the Board of Powerlink undertakes toseektoachievethefollowingnon-financialperformancestretchtargetin2014/15:



PERFORMANCE TARGETS

Cost Efficiency

• Total Network Maintenance Cost / Depreciated Asset Value

1.7% 1.7%

• Total Controllable Operating Cost / Depreciated Asset Value

3.0% 3.0%

Environment Objective: To be compliant with relevant legislation. Any reportable instances that may occur will be reported.

Target: To be materially compliant.

Safety

• LTIFR(FrequencyRate) 3.0 5.0

• LTIDR (Duration Rate) 4.0 5.0

Network Performance 1 2014 Year 2013 Year

• Transmission Circuit Parameters

• Peak transmission availability > 98.76% > 98.76%

• Transmission line availability > 98.76% > 98.76%

• Transformer availability > 98.76% > 98.76%

• Reactive plant availability > 97.15% > 98.15%

• Average Outage Duration 859 minutes 859 minutes

• System Reliability

• Events in excess of 0.1 system minutes Not More Than 4 Not More Than 4

• Events in excess of 0.75 system minute Not More Than 1 Not More Than 1

1 Applies to Calendar Year.


4.4 AssumptionsPowerlink’s undertaking to achieve its performance outcomes is predicated upon the following assumptions:

ASSUMPTIONS 2014/15SCI

2013/14SCI

Economic Assumptions

CPI 1 2.5% 2.5%

Asset Revaluation 1 2.5% 2.5%

Salaries and Wages Growth 2 3.0% 3.5%

Income Tax Rate 30% 30%

Financial Assumptions

AER Revenue Cap – Regulated $951.8 M $901.9 M

Network Assumptions

Network (Circuit kilometres) 15,653 kms 15,453 kms

1 Reported 12-month period from March to March.2 Includes estimated Service Target Performance Incentive Scheme Bonus (STPIS) achieved

for relevant Calendar Year.

4.5 Financials4.5.1 ConsolidatedProfit and Loss Statement

POWERLINK QUEENSLAND (Consolidated)

2014/15Stretch Target ($ M)


Operating Revenue

Total Operating Revenue: 1,076.1 1,019.7

Operating Expenses

Controllable Operating Expenses 206.2 190.9

Grid Support Costs 3.8 ---

Depreciation 286.2 275.4

Other 1 6.3 6.0

Total Operating Expenses: 502.5 472.3

Earnings Before Interest and Tax (EBIT) 573.6 547.4

Interest Expense 261.3 260.5

IncomeTaxEquivalentExpense 93.7 86.0

NetProfitAfterTax(NPAT) 218.6 200.9

Dividends Provided for 174.9 160.7

1 Includes Cost of Disposal of Non-Current Assets & Expenses for the provision of external customer services.


Balance Sheet – at 30 June of Relevant Financial Year

POWERLINK QUEENSLAND(Consolidated)



Current Assets

Cash 30.0 30.0

Receivables 135.2 109.1

Other 43.0 39.7

Total Current Assets: 208.2 178.8

Non-Current Assets

Investments --- ---

Property,Plant&Equipment 7,893.6 7,786.5

Other 0.3 0.3

Total Non-Current Assets: 7,893.9 7,786.8

TOTAL ASSETS: 8,102.1 7,965.6

Current Liabilities

Creditors 60.4 58.1

Other 195.9 202.0

Total Current Liabilities: 256.3 260.1

Non-Current Liabilities

Borrowings 4,359.9 4,447.8

Other 736.9 700.1

Total Non-Current Liabilities 5,096.8 5,147.9

TOTAL LIABILITIES: 5,353.1 5,408.0

NET ASSETS: 2,749.0 2,557.6

Shareholders Equity

Share Capital 401.0 401.0

Reserves 1,120.1 1,055.6

Retained Earnings 1,227.9 1,101.0

TOTAL SHAREHOLDERS EQUITY: 2,749.0 2,557.6

Shareholder Equity Injections and Withdrawals 1




ShareholderEquityInjections Nil Nil

ShareholderEquityWithdrawals Nil Nil

NET EQUITY Nil Nil1 ApprovaloftheSCIdoesnotconstituteapprovalofforecastequityinjectionsorwithdrawals.

Dividends and Tax Equivalent Expense




Dividends Provided 174.9 160.7

TaxEquivalentsExpense2 93.7 86.12 AsidentifiedinProfitandLossStatement.


Statement of Cash Flows




Cash Flows from Operating Activities

Cash Receipts in the course of Operations 1,067.4 1,083.3

Cash Payments in the course of Operations (238.4) (189.7)

Interest Received 0.8 0.5

Interest Paid (261.4) (260.5)

TaxEquivalentPayments (89.1) (84.7)

Net Cash Provided by Operating Activities: 479.3 548.9

Cash Flows from Investing Activities

PaymentsforPropertyPlantandEquip. (522.9) (677.8)

Proceeds from Sale of Non-Current Assets 3.3 3.0

Other --- ---

Net Cash used in Investing Activities: (519.6) (674.8)

Cash Flows from Financing Activities

Proceeds from Borrowings 205.7 284.6

Dividends Paid (165.4) (158.7)

Other --- ---

Net Cash from Financing Activities: 40.3 125.9

Net Increase/(Decrease) in Cash Held Nil Nil

Cash @ Beginning of the Financial Year 30.0 30.0

Cash @ End of the Financial Year 30.0 30.0

Cash BalancesPowerlink transactional banking operates through commercial banking arrangements, with only minimal funds retained in its transactional banking facilities.

All funding is sourced through Queensland Treasury Corporation. Powerlink forecasts its daily monetary needsandtransfersfundsovernightfromQTCtomeetitstransactionbankingrequirements.Inthisway themajorityofworkingcapitalcashiskeptwithQTCwiththeassociatedbenefitsofthelargerportfolio of funding arrangements.

These arrangements maximise the opportunity for the Queensland Government overall to make use of any available cash balance that Powerlink may have. Powerlink aims to keep its cash balance at around $30 million, with most of this residing in QTC’s cash account at any given time.

4.5.2 Key AssumptionsPowerlink’sfinancialforecastsarebasedonthefollowingkeyassumptions.Changestotheseassumptionsmayimpactontheprojectedfinancialresults.

Regulated Revenue CapPowerlink’s AER regulatory determination for the period 2012/13 to 2016/17 delivered on 30 April 2012.

AEMC Contribution LevyOn 6 March 2014, the DEWS Director General wrote to Powerlink advising that from July 2014, a new annual levy would be applied on Powerlink to recover the electricity portion of Queensland’s annual AEMC payment.


For 2014/15 this will be $4.01 million and will be in addition to the current transmission licence fee paid by Powerlink. This new annual levy had not been previously budgeted and has now been included in the forecast. As such the previously targeted 2014/15operatingcostefficiencieswillbereducedbythislevy.

Regulatory pass through ItemsThere are a number of cost items that are subject to regulatory “pass through” arrangements, such as some “Network (Grid) Support Costs” and “Insurance Above Cap Events”.

Should pass through events occur, Powerlink is able, with the consent of the AER, to adjust the revenue collectionsinsubsequentyears.Whilstthismaynotimpactprofitability,itwillaffectPowerlink’scashflows.

Natural Disaster EventsPowerlink assets are subject to extreme climatic events, and transmission structures are designed to withstand high wind loadings. Nonetheless, events such as cyclones, severe wind events and severe floodeventscancausemajornetworkdamage.However,theseareinfrequent.

The AER’s self insurance and pass through regulatory arrangements, and Powerlink’s insurance policies provide cover for most natural disaster event costs. As the self-insurance allowances are based on annualised long-term actuarial allowances for these events, variances between the actual cost of events and annual allowancesmayimpactonannualprofitability.

Network Performance – Service Target Performance Incentive SchemeThe AER Service Target Performance Incentive Scheme is designed to deliver a revenue neutral result over time. For business planning purposes, Powerlink assumes a “Nil” bonus or penalty applies for future financialyears.

For the 2013 calendar year, Powerlink’s performance exceeded the AER targets, with an estimated bonus of approximately $20.7 million. This is still subject to audit and approval by the AER. The service standard bonus has been included in the regulated revenue cap for 2014/15.

DividendsPowerlinkmanagesitsoverallcashflowrequirements,includinginvestments,dividendsandoperatingexpenditure,toachieveappropriateprudentialrequirementsandmaintainatleastan“investmentgrade”businesscreditrating,andaspecifictargetratingagreedwithshareholdingMinisters.

Powerlink has a dividend payout ratio policy of 80% which has been adopted for business planning purposes.

ContestabilityIt is assumed that:• Powerlink will continue to be a monopoly owner of transmission assets in Queensland;• Contestability of new non-regulated transmission connection assets in Queensland will continue; and• Powerlinkwillcontinuetohaveaccesstorequireddebtfundingtopursueapprovednon-regulated

investment opportunities.

Powerlink recognises the debt funding limitations and debt reduction objectives of the Queensland Government. Powerlink will pursue acceptable funding approaches, in consultation with Projects Queensland, for non-regulated transmission network investments.

Non-regulated Network InvestmentsFor business planning purposes, Powerlink has only included capital expenditure for approved non-regulated network investments where the customer has committed to and provided the notice to proceed for the transmission connection.


Electricity Market ReviewsPowerlinkhasassumednosignificantchangeaffectingitsfinancialpositionoroperationalstructureasaresultof the electricity market reviews, including:

AEMC – Transmission Framework Review

The AEMC completed its review of electricity transmission frameworks in the NEM in April 2013. SCER continues to consider how to progress a number of the key recommendations from the review, including through the national rule change process. Powerlink will continue to engage on this matter through Grid Australia and the ENA as appropriate.

AER – Better Regulation Program

The Australian Energy Regulator (AER) completed its “Better Regulation” program in late 2013. This involved the release of six regulatory guidelines which must be applied to the next regulatory determination processes for electricity transmission and distribution businesses in the NEM.

SCER Review of Enforcement Regimes

The SCER is undertaking a review of enforcement regimes under the national energy laws. This is to ensure that the interests of consumers are protected and the integrity of the energy market is maintained.

Government PolicyTransmission prices

TheQueenslandGovernmenthasexpressedaviewthatanyfurtherefficienciesand/orreductionsincapitalexpenditure may result in lower transmission service charges (than which otherwise are provided for under theregulatoryarrangements).TotheextentthatPowerlinkdeliverssuchfurtherefficiencies,anexplicitdirectiontothateffectfromshareholdingMinisterswillberequired.

Financing structure review

The Queensland Government has recently initiated a review and market sounding of alternative funding structuresforfuturecapitalexpenditurerequirementsbyelectricitynetworkbusinessinQueensland.Powerlink has assumed no change in its delivery and operational cost model as a result of any outcomes from the review.

4.6 Capital Expenditure ProgramProposed Capital Works ExpenditureRegulated investments greater than $120 million and unregulated investments greater than $50 million will be submitted to shareholding Ministers for approval, following their approval by the Powerlink Board. Powerlink undertakes to notify shareholding Ministers of all investments greater than $20 million immediately following their approval by the Powerlink Board.

Total capital works expenditure in 2014/15isforecasttobe$522.9million,excludingfinancingcosts duringconstruction.Thisispartofafive-yearforecastforthecurrentregulatoryperiodexpectedtodelivera reduction in regulated capital expenditure compared to the AER revenue decision.

Powerlink’s capital works expenditure forecast for 2014/15 only includes non-regulated transmission network connections that are under construction or a notice to proceed has been provided by the customer.


Project Approved Total Cost

Estimated Expenditure

2014/15

Expected Completion

Date

Shareholding Minister Approved

South West Queensland Augmentation $190.0 M $0.7 M Winter 2014

Gladstone Substation Replacement $164.0 M $3.2 M Summer 2014/15

Board Approved

Mackay Substation Replacement $32.3 M $3.5 M Summer 2017/18

Swanbank B 275kV Substation Replacement $57.9 M $8.6 M Summer 2014/15

Ross Secondary System Replacement $27.0 M $5.9 M Summer 2017/18

Nebo 275/132kV No.2 Transformer Replacement $20.5 M $3.2 M Summer 2014/15

Blackwall iPASS Secondary System Replacement $26.2 M $7.9 M Summer 2016/17

Bulli Creek iPASS Secondary System Replacement $22.3 M $1.1 M Winter 2014

Moura Switchyard Replacement $24.5 M $4.6 M Summer 2016/17

Bouldercombe Secondary Systems Replacement $20.6 M $0.4 M Summer 2014/15

Braemar iPASS Secondary System Replacement $22.4 M $4.6 M Summer 2015/16

Collinsville 132kV Substation Replacement $33.7 M $1.4 M Winter 2014

Nebo Primary Plant Replacement $22.5 M $5.3 M Summer 2018/19

Powerlink has the following non-regulated network transmission connections currently under construction or approved.

Approved and Under Construction• QR National (Aurizon) – Wotonga Rail Connection• APLNG – Columboola Connection• APLNG – Orana 275kV Substation Establishment• APLNG – North West Surat Connection• GLNG/Santos – Wandoan South Connection

Potential Non-Regulated ProjectsWhilst Powerlink is in discussions with a number of entities regarding potential non-regulated transmission connections,nonehavebeenincludedinthefinancialforecasts.

Other Major Capital Expenditure Planned to Commence in 2014/15ShareholdingMinisterswillbenotifiedofanyprojectsastheyoccur,andwhererequired,submitted for approval.

Total Capital Expenditure

Description Approved Total Cost Estimated Expenditure 2014/15

Total Shareholding Minister Approved $354.0 M $3.9 M

Total Board Approved $309.9 M $46.5 M

Total Non-Prescribed Transmission Network Connections

--- $292.2 M

Total Other Projects --- $180.3 M

TOTAL CAPITAL EXPENDITURE: $522.9 M


5 ADDITIONAL MATTERS5.1 Corporate GovernanceTheBoardwillensurePowerlinktakesresponsibilitytoensurethatprudentfinancialpracticeswillbeappliedwithin the corporation. Without limiting the obligations imposed on the Board and the Chief Executive by the GOC Act and, where applicable, the Corporations Act, this includes a commitment to:• Comply with the Code of Practice for Government Owned Corporations’ Financial Arrangements

(Code of Practice) as issued by the Queensland Government; and• Establish,maintainandimplementappropriatefinancialriskmanagementpracticesandpolicies requiredandasspecifiedintheCodeofPractice.

The Board acknowledges and has put in place governance mechanisms to ensure compliance with GOC policies.

5.2 Community Service ObligationsNocommunityserviceobligationshavebeenidentifiedbyPowerlinkin2014/15.

5.3 Capital Structure and BorrowingsThe level of borrowings for 2014/15 is $205.7 M.

AsanintegralpartofthefinancingoftheCorporation,theoveralldebtwillbemanagedtoensurethatPowerlink maintains the appropriate credit rating or other rating as directed by shareholding Ministers. Powerlink’sBoardwillensureitcomplieswiththisrequirement.

5.4 Dividend PoliciesWhile the dividend process is governed by the GOC Act and the Corporations Act 2001, the Board will also ensure that Powerlink’s dividend policy takes into account the return its shareholders expect ontheirinvestments.Powerlink’spolicyistorecommendandpayadividendamountequivalentto80% (orthepercentageapprovedbyshareholdingMinisters,ifdifferent)ofPowerlink’s“NetProfitAfterTax” for 2014/15.

The Board adopts such a policy on the basis of its shareholders agreeing to provide the necessary funding for projects which have received Board and shareholding Ministers’ approval or for the maintenance of Powerlink’s approved capital structure or for ensuring the operational viability of Powerlink.

Whendeterminingtheactualdividendtobepaidbasedonthefinalauditedfinancialresults,theBoard will ensure shareholding Ministers are consulted through their departments on the level of dividends.

5.5 Employment and Industrial Relations Plan (E&IR Plan)AnEmploymentandIndustrialRelationsPlan(E&IRPlan)meetingtherequirementsoftheGOC Act is provided to shareholding Ministers as Attachment 2 to this SCI. The remuneration arrangements for the Directors, Chief Executive and all senior executives of Powerlink are also detailed in the E&IR Plan.


5.6 Risk ManagementThe Board of Directors of Powerlink has ultimate responsibility for the management of all potential internal andexternalrisksfortheCorporation.TheCorporation’sriskidentificationandmanagementprocessis monitored by the Audit, Risk and Compliance Committee, which is a subcommittee of the Board and reports to the Board on a regular basis. The risk management framework is designed to ensure that all potentialfinancial,operationalandotherrisksareregularlyidentified,assessed,monitoredandreported, as appropriate, along with risk mitigation and management plans.

5.7 Salaries and WagesMarket median movements in remuneration for energy sector businesses such as Powerlink remain well aboveinflation.WhilereviewandrecalibrationoforganisationalresourcesisbeingundertakenbyPowerlink,as it is in most, if not all, Queensland GOCs, retention of skilled staff with the ability to effectively deliver the desired outcomes is also essential. Appropriate benchmarking of remuneration is a necessary part of retaining these important and skilled resources in the relevant businesses so that appropriate emergency response as well as reliability and security standards for Queensland electricity transmission assets can be maintained over time.

5.8 RecruitmentPowerlinkcontinuestorequireapprovaloftheChiefExecutiveinconsultationwithExecutiveManagerPeople and Culture prior to the commencement of all recruitment activities. Approvals involving external recruitmentarereportedquarterlytotheBoard.


6 PERFORMANCE AGREEMENT6.1 Directors’ Statement and Agreement of Shareholding MinistersThis SCI for 2014/15 are presented in accordance with the GOC Act.

In accordance with the GOC Act, the SCI represents a formal performance agreement between the Board ofPowerlinkanditsshareholdingMinisterswithrespecttothefinancialandnon-financialperformancetargetsspecifiedforthefinancialyear.TheSCIalsorepresentsanacknowledgmentofandagreement to major activities, objectives, undertakings, investments and borrowings of Powerlink for 2014/15.

This SCI is consistent with Powerlink’s 2014/15 to 2018/19 Corporate Plan submitted to, and agreed to by, shareholding Ministers in accordance with the GOC Act.

In signing the document the Board of Powerlink undertakes to ensure that the document, and all reports to shareholding Ministers, are prepared with accuracy and timeliness.

In signing this document Powerlink’s Board undertakes to achieve the targets proposed in the SCI for 2014/15.

Major changes to key assumptions and outcomes detailed in this SCI, and which come to the Board’s attentionduringtheyear,willbebroughttotheattentionofshareholdingMinisters.Anymodifications to this SCI will be dealt with in accordance with the GOC Act.

This SCI is signed by the Chairman on behalf of all the Directors in accordance with a unanimous decision of the Board of Powerlink.

Stephen Rochester Chairman

Shareholding Ministers

Tim Nicholls MP Treasurer and Minister for Trade

Mark McArdle MP Minister for Energy and Water Supply


7 ATTACHMENTSAttachment 1

FINANCIAL AND NON-FINANCIAL TARGET DEFINITIONS

Return on Total Assets Earnings Before Interest and Tax (EBIT)Average Total Assets

Dividend Return on Share Capital DividendsShare Capital

ReturnonEquity NetProfitAfterTax(NPAT)AverageTotalEquity

DebttoDebt+Equity Total DebtTotal Debt plusTotalEquity(endofyear)

Debt to Fixed Assets Total DebtTotal Closing Fixed Assets (including WIP)

Interest Cover (EBITDA) EBITDA / Interest Expense

Dividends Provided Dividend calculated using Dividend Payout Ratio (cashflowoccursinfollowingyear)

Dividend Payout Ratio Dividendas%ofNetProfitafterTax

Total Distributions TaxEquivalentLiability+DividendsProvided

LostTimeInjuryFrequencyRate(LTIFR) No. of Injury Occurrences x 1,000,000No. of Hours Worked

Lost Time Injury Duration Rate (LTIDR) No. of Working Days Lost x 1,000,000No. of Injury Occurrences

System Minute A measure of energy not supplied during transmission disturbances. One system minute is the amount of energy that would be transported during one minute at the system maximum demand.


Attachment 2

EMPLOYEE RELATIONS

1. Employment and Industrial Relations ApproachWith strong concern about electricity price increases from the community and governments and intense scrutiny on the electricity sector and the contribution of network businesses like Powerlink, it is more importantthanevertoensureourbusinessoperationsareeffectiveandefficient.Powerlinkrecognisesthesefactors and has responded with a focus on a number of strategic business themes and priorities. This includes anevenstrongerfocuson“efficientperformanceanddelivery”toachievetheagreedstretchtargetthroughcontinuous improvement, while maintaining sound and viable long term business operations and an engaged workforce.

Powerlink’sfocusisondeliveringspecificinitiativesrelatingtoleadership,safetyperformanceandaccountabilitythatsupport‘clarityofaccountabilities’andefficienciesacrossthebusiness.

ToeffectivelyimplementchangethatwillhavelongtermbenefittoPowerlink’soperations,Powerlinkstrivesto take a reasonable and appropriate consultative approach with staff and their representatives to resolve all issues locally within the business.

Employment arrangements within Powerlink continue to be driven by, and integrally linked to, the strategic business objectives. Currently, the Working at Powerlink 2011 Union Collective Agreement covers approximately 95% of Powerlink’s staff and provides for the majority of the terms and conditions of employment for those staff. In addition, Powerlink strives to encourage direct relationships with staff where it can and thisissignificanttoPowerlink’semployeerelationsapproach.

2.SignificantandEmergingIssuesThereareseveralissuestonotethatinfluencethecurrentemployeerelationsplanandapproachincluding:• The Australian Energy Regulator (AER) delivered its decision in 2012 in regard to Powerlink’s revenue

allowance and network performance targets for the regulatory period (2012/13 to 2016/17). Powerlink continuestoseektodeliverefficienciestooutperformthantherevenuedeterminationwhilstcommencinga process of preparing for the next regulatory period (2017/18 to 2021/22).

• RationalisationofPowerlink’shighlevelorganisationalstructurehasdeliveredefficiencyandimprovementsin the Powerlink business through clarity of accountability. This process of restructuring and clarity in accountability continues to be driven down through the organisation. This has been delivered within the existing arrangements through a process of engagement with staff and consultation on key issues.

• The Working at Powerlink 2011 Union Collective Agreement reaches its nominal expiry date on 27 November 2014 and a renegotiation of the Agreement is due to occur during this period.

Our primary Employment and Industrial Relations goals for this year are to:• EnsurethattheresourcinglevelsatPowerlinkaresetattheoptimallevelrequiredtooperatethebusinesseffectivelyandefficientlybycompletingongoingreviewsandensuringrecruitmentapprovalrequests are approved by the Chief Executive and all external recruitment is reported to the Powerlink Board onaquarterlybasis;

• Continuetoimplementandembedefficienciesgainedthroughthehighlevelorganisationalrestructurebyreviewingteamresourcecompositionandstreamliningaccountabilitiestoensureminimumlevelsrequiredto deliver works;

• Continuetoimprovebusinessefficiencybycompletingvariousprocessandservicesreviewsanddrivechanges to the Powerlink culture to focus on performance, leadership, accepted decision rights and the achievement of stretch targets; and

• Negotiate and deliver collective arrangements for employees through enterprise agreement negotiations whichdelivergreaterbusinessproductivityandflexibility.


EMPLOYMENT AND INDUSTRIAL RELATIONS PLAN

1. Employment ConditionsEnterprise AgreementEmployees’ current conditions are in accordance with the Working at Powerlink 2011 Union Collective Agreement (“the Agreement”), which covers just over 1,000 employees. The Agreement came into operation on 30 March 2012.

The Agreement outcomes complied with the Queensland Government policy and approval processes that applied at the time.

The key features of the current Agreement include:• A three-year Agreement with an operative date of 27 November 2011 and an expiry date

of 27 November 2014;• A 3.5% base wage increase (including a 1% productivity component) plus a further 0.5% off-wages/lump

sum productivity payment paid each year on 27 November 2011, 2012 and 2013;• Indexation of the Transmission Network Reliability Allowance (TNRA) and the Transmission Network ReliabilityPayment(TNRP)by3.5%perannumtoreflectthebasewagepercentageincrease;

• Indexationof‘agreementbasedallowances’by3.5%toreflectthebasewagepercentageincrease per annum; and

• A commitment by employees to participate in a range of broad business and process improvement practices.

TheAgreementalsooutlinesspecificproductivityinitiativestobepursuedbyPowerlinkduringthelifeofthecurrentAgreement.Theseinitiativessupporttheproductivitycomponentsofthewageincreasesasrequiredunder the previous policy. As part of the Statement of Corporate Intent reporting processes, Powerlink willcontinuetoprovidequarterlyprogressreportsontheachievementoftheAgreement’sproductivityinitiatives.

PowerlinkplanstoimplementtherequirementsoftheGOCWagesPolicy2012 as part of negotiations for a replacement Agreement which is anticipated to begin in mid 2014, following Government approval of Powerlink’s bargaining framework. Arrangements which allow Powerlink to meet its business needs will be key drivers in this process.

2. WorkforcePowerlink’sresourceplanningprocessconsidersworkforcerequirementstodeliveritsprogramsofworks,for the regulated program, the non-regulated program (which supports the resource sector) and ongoing operationalrequirementsofthenetwork.

Each year the planning process is integrated with the annual budget cycle to ensure that resources are effectively deployed to operate the business soundly through operating a reliable network and seeking opportunitiesforefficiency.

The capital program is primarily undertaken by external construction companies, but designed and project managedbyPowerlinkemployees.Toaccountforvariabilityinthequantumandmixofprojects,Powerlinkusesaworkforcecomprisingcombinationofpermanent,fixedtermandlabourhiretoappropriatelyresourcetheseprojectmanagementactivities.Minorvariationsinresourcerequirementswillbemanagedbyadjustingthe levels of labour hire resources.


Workforce

Workforce FTEs 1 30 June 2014 30 June 2015 30 June 2016

Employment Category:

Permanent (including Part-time) 935 910 900

Senior Executive 7 7 7

Apprentices (In House) 36 36 36

Trainees (In House) 35 30 23

Casual and Fixed Term Employees (FTE) 20 25 20

Total Directly Employed Workforce: 1,033 1,008 986

Contingent Administration 4 3 3

Contingent Professional 4 3 3

Contingent Technical 26 25 25

Total Workforce (including Contingents): 1,067 1,039 1,017

1 FullTimeEquivalent(FTE)meansfulltimeequivalentperannum.PowerlinkappliesFTEtoemployees (full time, part time and casual) and contingents. Overtime does not count toward FTEs.

3. Redundancy ProvisionsPowerlink’s redundancy provisions focus on redeployment and retraining, but provide for the following in case of redundancy:• 6 months notice of redundancy or 13 weeks early separation payment.• 3 weeks per year of service severance payment with a minimum of 4 weeks (National Employment Standards)

up to a maximum of 75 weeks.• Pro-rata long service leave.• Accrued recreation leave.• Outplacement and retraining support.

The Agreement provides a commitment to no forced redundancies, subject to employees accepting reasonable redeployment and retraining. In line with the GOC Wages Policy 2012, Powerlink will approach the next round of bargaining with a view to re-negotiating these provisions.


4. Remuneration ArrangementsTheremunerationdetailsforPowerlink’sChiefExecutiveOfficerandotherSeniorExecutivesapplying on 1 January 2014 are:

CEO / Senior Executives Base Salary 1 Employer Superannuation Contributions

Total Fixed Remuneration

Performance Payment in 2013/14 2

Merryn York,Chief Executive

588,570 58,858 647,428 54,194

Maurie Brennan,ActingChiefFinancialOfficer

330,264 33,027 363,291 31,863

Julia Smith,Acting Executive Manager People and Culture

254,595 25,460 280,055 18,754

Michelle Palmer,Acting Executive Manager Stakeholder Relations and Corporate Services

215,453 21,546 236,999 12,268

Roland Vitelli 3,Acting Executive Manager Infrastructure Delivery and Technical Services

308,442 30,845 339,287 20,581

Chris Hazzard,Acting Executive Manager Operations & Field Services

230,192 23,019 253,211 17,723

Garry Mulherin,Acting Executive Manager Investment and Planning

272,327 27,233 299,560 16,319

1 Includes any salary sacrifice items (eg. motor vehicle, superannuation and other benefits) and cash salary.2 Relates to previous financial year and is linked to the achievement of corporate results.3 The Senior Executive resigned post 1 January 2014. A new Senior Executive is appointed and commenced in April 2014.

5. SuperannuationEmployer superannuation contributions for employees who are covered by the Enterprise Agreement are made to the Energy Super Superannuation Scheme. The only exceptions to this are those employees who had existing membership of QSuper, who may remain in that fund, and senior staff who are outside of the agreement and have Super Choice. In accordance with the Agreement, Powerlink currently contributes 9.25% (or the appropriate percentage as determined by applicable Superannuation Legislation) of an employee’s salary or 10% where the employee contributes 5% of their salary.

6. ConsultationThe shareholding Ministers’ departments and the Industrial and Employee Relations Division of the Public Service Commission have been consulted on this plan, as have relevant unions.

7. Workplace Health & SafetyPowerlink’s Safe For Life program was launched in August 2013 following external review of the approach to safety at Powerlink. The Safe For Life program is progressing to ensure Powerlink continues to deliver our vision of safe outcomes every day for ourselves, our workmates, contractors and the community.

The Safe For Life program includes eight key focus areas which have been prioritised to provide continual improvement in health and safety. Each focus area is supported by a number of projects to facilitate key outcomes. The focus areas include:• Consistency of health and safety standards• WHS risk management• Improve safety event management• Fit for work

• Improve safety leadership and behaviours• Implement effective safety measures• Effective workplace health and safety training• Contractor management


Attachment 3

SPONSORSHIP, ADVERTISING, CORPORATE ENTERTAINMENT & DONATIONS

SponsorshipsPowerlink’s sponsorship policy includes a framework upon which all applications are assessed against. Powerlink’s framework highlights three key focus areas:• empowering communities;• protecting and conserving the environment; and• supporting safety and well-being.

TobeassessedbyPowerlink,applicantscansubmitarequestforsponsorshipfundinginwriting, which will be assessed against set criteria for evaluation. To be accepted, the sponsorship must be in line with the framework and provide an appropriate and value for money business outcome.

Any sponsorship greater than $5,000 that is recommended for funding must also be reviewed and endorsed by the Powerlink Board.

AdvertisingPowerlink undertakes very limited advertising. Advertising undertaken generally relates to operational requirementsandincludesitemssuchas,advertisingenvironmentalimpactassessmentconsultationarrangements, notifying communities of helicopter maintenance activities, recruitment, and similar.


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8 GLOSSARY OF ABBREVIATIONSAEMC Australian Energy Market Commission

AEMO Australian Energy Market Operator

AER Australian Energy Regulator

APR Annual Planning Report

COAG Council of Australian Governments

GOC Government Owned Corporation

GSP Growth State Product

MCE Ministerial Council on Energy

NEM National Electricity Market

NER National Electricity Rules

RIT–T Regulatory Investment Test – Transmission

Rules National Electricity Rules

SCER Standing Council on Energy and Resources

TNSP Transmission Network Service Provider

WACC Weighted Average Cost of Capital

POWERLINK QUEENSLANDABN 82 078 849 233

33 Harold Street Virginia Queensland Australia 4014

PO Box 1193 Virginia Queensland Australia 4014

Telephone: (07) 3860 2111 Facsimile: (07) 3860 2100

www.powerlink.com.au

Documents

Prepared by the Directors and Management of Powerlink … · 2015-09-11 · Powerlink Statement of Corporate Intent 2014/15 1 1 EXECUTIVE SUMMARY Powerlink is a Queensland Government